How to Start Your Own Craft Brewery

By Pamela S. Stevens, Senior B2B Editor August 9, 2016 07:05 am EST

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Credit: MaxyM/Shutterstock

There are now more than 4,000 small breweries and brewpubs scattered across the U.S. But like any business, surviving long term can be a real challenge, particularly because the market has become so crowded over the past 20 years.

To compete, you'll need to carefully evaluate your market and create a clear vision of what you have to offer that other direct competitors do not provide. There is still room in the market for businesses that offer niche products and in less-saturated local markets. You'll have a better chance for success if you can create a solid vision of what you want to offer, not just with beer recipes, but also with branding.

This article covers these topics related to starting a craft-brewing business:

Do you have what it takes?

So you think you want to go into the beer industry. There are many questions you should ask yourself before pursuing this challenging and costly business adventure.

Do you love beer?

Can you clean all day long?

Are you able to work more than 40 hours per week?

Do you have sales and marketing skills?

Are you a good record-keeper?

Can you afford to work years without seeing a profit?

Do you have something to offer that no one else can?

Do you have good equipment-repair skills?

Are you comfortable asking for funding?

There is a lot more to the business than just brewing and drinking beer. Unless you are heavily funded and can hire a full crew right away, you may find yourself spending a large portion of every day cleaning, and then spending the rest of the day managing your books, sales, vendors and customers. And brewing beer never sleeps, so you may also be working nights and weekends. In fact, many small-brew business owners keep their day jobs and brew nights and weekends until they can afford to pay themselves a salary. However, despite the challenges most brewery owners say the effort is worth it.

Training and education

There is a lot to learn to become a successful brewer. Experts recommend that even seasoned home brewers spend some time working in a brewery before starting their own business. Entry-level work usually involves a lot of cleaning, sterilizing and other tedious tasks, but you'll learn the daily routines of a busy brewery. After you put some time in, you can move up and learn additional job skills that pay more, but it's worth your time to learn all the job positions in a productive brewery.

If you have the time and resources, formal training programs are also available, including university degrees. Certificates and four-year degrees are offered in states such as Michigan, California, Colorado, Oregon and Missouri. International schools are also available in places such as Belgium, Germany and the United Kingdom. Alternatively, you can find online courses and even free programs. Portland State University offers a certificate program specifically focused on the business portion of running a brewery, while CraftBeer.com offers free and low-cost educational opportunities.

Startup costs to consider

Your first plan of action will be to create a solid business plan. And then, according to many brewers, to prepare to pay out twice the amount you think it will cost to launch your business. A lot of unexpected expenses can pop up, such as additional contractor expenses for altering your building, or delays in acquiring permits that push out your production date. Depending on the size of your operation, the number of barrels and whether you plan on operating a brewpub or a stand-alone brewery, your costs can vary greatly. Most industry experts report a general range of $500,000 to $1 million to start a small brewery.

Building: Often includes the costs of reinforcing the floor and remodeling to accommodate equipment and pickup and deliveries, lease or rental fees, inspections, water system alterations, consider room for future expansion.

Creating a business plan

Having a realistic and thorough business plan is absolutely necessary to your brewery's long-term success. Investors want to see not just a general plan, but as many as three years of projected financials. Even if you have capital saved, you'll still benefit from a bulletproof financial plan. We recommend that you consult with a professional who can help you create your business plan plus provide financial advising, legal assistance and help with obtaining funding. These services are not free (often around $5,000) but worth the investment.

Before you meet with your consultant put together as much as you can, including your startup costs, expected ongoing costs and revenue projections, business vision and anything else you think of to help you and your consultant put together the best business plan possible.

If you are looking to build a new brewery, with all new equipment, and ask for large sums of investment or loan money, you'll need to quantify your passion and present it in a way that your potential investors will understand.

Funding your microbrewery

Unless you already have a generous funding set aside, you'll need to raise capital and plan for extra expenses. You'll likely need to obtain funds from multiple sources. Consult with a professional about how best to obtain funding. Good credit, experience and collateral will help, but you may also want to obtain "letters of intent" from distributors who have agreed to purchase your product.

Here are a few ways to help with funding your brewery:

SBA 7(a) Loans: These are government-backed business loans and the best place to start. Terms and rates are usually competitive and larger loans are available. The paperwork to apply for these loans is extensive, but worth your time since the loans offer good terms. You can learn more about these loans here.

Local Banks: Sometimes your local bank may be interested in funding homegrown projects that benefit the community they operate in. Many have found more success with a local bank over a national bank that does not have direct ties to the community.

Crowdfunding: This is basically receiving funds in advance from a lot of investors or donors. Some are all-or-nothing endeavors, so you set an amount and if you do not reach that goal you give the money back. Others allow you to accept the funds even if you do not reach your goal. Platforms include Kickstarter, Indiegogo and Fundable.

Peer-to-Peer: This is a type of lending that may involve a large group of investors or individual investors. Your credit history and scores often factor into these kinds of loans. Usually these loans are not large enough to fund your entire project, but are worth investigating. Popular options include Lending Club, Prosper and Street Shares. Learn more about Peer-to-Peer lending here.

Community Supported Brewing (CSB): Community Supported Brewing is a newer concept and involves taking funds from community members in advance in exchange for beer or merchandise later. For this to work, you'll need excellent marketing, social and sales skills.

Co-Op Breweries: These are democratic worker- or community-"owned" breweries. Often, there is a board that helps manage the business and members can contribute their ideas as well. They are often heavily integrated into the local community and seek environmental sustainability. These types of brewers usually involve multiple brewers who share the brewing equipment.

Brewery Incubators: This model allows experienced and new brewers to share expenses. Often supported by someone already in the industry, a restaurant or an established brewer, they will assist new brewers in their first large-scale projects. Sometimes they may even offer contests in which the new brewer may earn a paid internship or other training opportunities. They may also charge the new brewers to use the facilities and for training. Every incubator is different, but they may provide inexperienced brewers a low-cost opportunity to brew their first large batches of beer.

It helps to get creative when you're looking to start a brewery. Many entrepreneurs in the industry are fortunate enough to take over an existing brewery after the previous owners have moved along. Some have been able to partner with restaurants looking to add a brewpub. You may also be able to lower costs by purchasing used equipment or by leasing equipment. Eventually you should be able to afford your own equipment if you plan to increase your volume. Plus, it is easier to get funding once you can show what you are capable of doing, even if it is on leased equipment.

Finding a distributor

The U.S. requires a three-tiered system for alcohol distribution. This has been in place since the repeal of Prohibition. The three parts are producers (you, the brewer), distributors and retailers. You sell your product to wholesale distributors and they in turn sell to the retailers, who sell your product to the end-user, the beer drinker.

Most states also have their own requirements and are often involved somewhere in the distribution process (with the exception of brewpubs, which manufacture the beer and sell it directly to patrons in the pub). Some of the more prohibitive states ─ Utah and Pennsylvania, for example ─ control at the distribution and retail levels. You'll need to research what your specific state requirements might be, as well as those states you plan to sell in.

In your area, you may be able to work with one of the major distributors such as Anheuser-Busch or Miller, or a distributor that specializes in non-major brand products. You'll want to carefully consider which company you want to distribute with and the specifics of your contract. Most states have laws to protect the provider-distributor sales contract (which could last years), so you'll want to carefully consider your needs now as well as your needs in the future before signing a contract. The local brewing group or guild you belong to should be able to help you find the best distributor to suit your needs and brand. You should also visit retailers who might be selling your beer to research the market and to talk to them about their experiences with the local distributors.

You'll want to carefully prepare your presentation before you meet with potential distributors. Before you meet with them, be sure to know your pricing models, advertising and marketing plans and other incentives. They need to know how you plan to help them sell your beer to retailers and end customers.

Some important questions to ask potential distributors:

Do you have enough refrigeration space for your product (if required)?

Do you have specific brand managers?

Do you work with other craft brewers? Which ones?

What retailers or restaurants do you think would best sell your product?

What is your typical margin?

What kind of success have they had selling specialty brands?

How often do they restock products?

In three-tier states, the distributors have the advantage since they don't have to work with you. They make the most money when they can sell your product at a healthy margin, so let them know how you can help them achieve this.

In general, distributors want to know these things about your business:

Can it help them move your product?

Can it keep up with production expectations?

Is it financially solvent?

Does it have a product line that fits the type of beer they want to sell?

Depending on your state, you may be able to find alternative ways to get your beer to your customers. As mentioned, if you have a brewpub you can likely sell through your pub without a distributor since the beer doesn't leave your establishment, or you might be able to sell your beer online. You'll want to carefully review your state's distribution laws to find the best method for you.

Permits and regulations

State and local laws for breweries vary greatly. Your local chamber of commerce should be able to point you in the right direction. Regardless of location, here are some things all will need to consider:

Government permits and regulations: Federal, state, county and city laws, health department requirements and inspections, building permits.

Advice from the experts

We spoke with two sources who work in or provide services for the beer industry, and asked about the one thing they could have benefited from knowing when they started out.

Get help from a professional. Nigel Francisco, CFO of Ninkasi Brewery in Oregon, expressed the importance of obtaining professional assistance to help you with your accounting, legal requirements and risk management. He said if you are not a numbers person, you need to find someone who is.

Track your inventory. Francisco also advised using an advanced inventory control system and a POS system if needed. Tracking of inventory, loss and sales need to be as exact as possible, and if an audit occurs, brew logs, test results and everything will be looked into, he said. Ninkasi Brewery uses Microsoft Dynamics GP, which can help you manage your accounting, supply chain and customers. Francisco said the reports available using this software greatly help with not just business insight and forecasting, but also with required inventory tracking.

Create a financial forecast. Sabrina Parsons, CEO of Palo Alto Software, makers of LivePlan business planning software, recommended that all potential brewery owners not just create a business plan, but also create a comprehensive three-year financial forecast. Quite a few LivePlan customers are small brewers, especially in Oregon where microbrewers are abundant. Your financial plans should be as accurate and as detailed as possible, including production projections, ongoing expenses, expansion costs and cash-flow schedules, Parsons said. Dealing with the challenges of financials could be discouraging to new business owners, but she said it is much wiser to go in with "your eyes wide open" rather than not knowing what you are getting into.

Where to learn more: Beer business resources

Your local chamber of commerce
The chamber of commerce can help you learn about local laws and regulations that you may need to comply to. This business advocacy group also provides business services and networking opportunities.

Local brewers guilds
Many areas, including cities such as San Diego and San Francisco, and states like Colorado, Minnesota and Texas, have a local brewers guild. The guilds provide a good way to connect to local breweries in your area, and often sponsor events and promotional opportunities.

Brewers Association
This resource, which has more than 45,000 members, is the service most often used for brewers. Here you can find beer news, event dates, statistics, best practices and legal resources. It also supports an active forum for members, guild information, brewpub seminars and much more.

CraftBeer.com
This site publishes articles featuring craft breweries and provides access to educational resources. It also offers food recipes using beer, and lists information about beer events and brewing classes.

Craft Brewing Business
Craft Brewing Business coves beer news, information on marketing, business insights and more. It focuses on professional brewers rather than home brewers so it offers information on professional brewing equipment and supplies as well. This website also provides information on packaging and distribution.

Kinnek
Here you can find information on equipment and supplies. It can connect you with vendors so you can obtain quotes on things such as kegs, bottles, casks and tanks. You can also obtain pricing information on brewing equipment such as boilers, filtering equipment, heat exchangers, transfer pumps and water- filtration systems.

Beer magazines
Enjoy a print magazine? There are a quite a number to choose from, including: Beer Advocate, All About Beer, DRAFT Magazine, Beer Magazine, Beer & Brewing, The Brewer Magazine and Celebrator. Most offer digital versions and post a lot of articles online as well.

National Beer Wholesalers Association
Here you can find information and news about beer distribution. According to NBWA, they have 3,000 licensed, independent beer distributors in their association.

Other local brewers
Local brewers often form a tight connection and provide a good network for learning more about the industry, local regulations, source and vendor options, and marketing opportunities. In fact, many areas have local groups or cooperatives that many craft brewers belong to. So if you have not already, get out there and meet your local brewers to learn as much as you can. With passion and persistence, you can turn your love of beer into a viable business.

Pamela S. Stevens

Pamela has one personal business motto: "If I ever lose money, I quit." And that has not happened yet through the past 20 years and five small businesses. Pamela is a California transplant who now resides in Ogden, Utah, where Business News Daily's parent company, Purch, is headquartered. She started with Purch in 2005 as one of the first writers for Top Ten Reviews (TTR), where she reviewed all types of products including business, security and financial software and services. Now she writes and develops content for all Purch B2B properties, covering a broad range of small business and IT topics. Her formal education includes a degree in Creative Writing and Geography, with a special interest in smart planning and urban development.